JUDGMENT : This is a second appeal by the Rajkumar Mills Ltd., Indore against the order of the Special Tax Commissioner dated 30-11-1950 under the amended R.13 of the Indore Industrial Tax Rules of 1927 (Vide Notification No.562/VII A/49, published in the Madhya Bharat Government Gazette dated 31-12-1949). The only point raised in this appeal is that the Special Tax Commissioner was wrong in disallowing deduction from the assessable profits, a sum of Rs.2537/- paid as commission to the managing agents out of profits. 2. Mr. Samvatsar who appears for the appellant contends that the remuneration paid to the managing agents is an. item of expenditure solely incurred for the purpose of earning profits and hence under R.3, sub-r.(2)(IX) of the Indore Industrial Tax Rules of 1927 profits must be computed for the purposes of assessment of Industrial tax after deducting the amount of remuneration paid to the managing agents. Before proceeding to consider whether the above named sum of Rs.2537/- paid to the managing agents should be deducted from the profits to be assessed to industrial tax, it is necessary to give a few relevant facts of the case. 3. The Rajkumar Mills Ltd. was incorporated in 1922 under the Indore Companies Act of 1914. Industrial tax rules were promulgated in 1927. Under the rules return of income was submitted for the year 1939 after the general meeting. The total profit was shown as Rs.1,44,573-0-0. The assessable profit was shown at Rs.13,023-5-10 and a sum of Rs.1220/- was paid as industrial tax. The assessment officer made final assessment on 19-7-1946 and showed Rs.1,61,263/- as total profits. According to him assessable profits were Rs.39,893 and demanded Rs.3739-15-6 as industrial tax. An appeal was preferred to the Commerce Minister. During the pendency of the appeal the rules were amended and hence according to the new rules the appeal was transferred to a Special Tax Commissioner for decision. The Special Tax Commissioner allowed only Rs.25,000/- out of Rs.27,537/-paid as commission to the managing agents from the profits. But he refused to allow the deduction of Rs.2537/-. Hence the Rajkumar Mills Ltd. have filed this appeal. 4. By Articles of Association of the Rajkumar Mills Ltd., the company entered into an agreement with the firm of Sir Saroopchand Hukumchand and Co. But he refused to allow the deduction of Rs.2537/-. Hence the Rajkumar Mills Ltd. have filed this appeal. 4. By Articles of Association of the Rajkumar Mills Ltd., the company entered into an agreement with the firm of Sir Saroopchand Hukumchand and Co. and provided for the appointment of the said firm as the managing agents of the company on the terms contained in the agreement (vide Art.(4) of the Articles of Association of the Rajkumar Mills Ltd.). By the said agreement it was agreed between the company and firm of Sir Saroopchand Hukumchand and Company as follows : "In consideration of the premises and as remuneration therefor and for the services to be performed by the said, firm as such Managing Agents as aforesaid the company shall pay to the said firm the following allowance and commission that is to say : (a) An allowance of Rs.1000/- (One thousand) per mensem to commence from the registration of the company until the Mill of the company begins to work and thereafter of Rs.1500/- (fifteen hundred) per mensem, as office allowance for supervision of, and attention to the Company's business, such allowance to be exclusive of all rents of the office of the company, and salaries, emoluments, and wages payable to the office staff and the clerks, servants and employees of the company, and all other expenses of the office establishment, all of which are to be paid by the company. (b) A commission at the rate of sixteen per cent, on the net profits made by the company, such profits to be calculated after allowing for all the usual working charges, interest on loans and advances, repairs and outgoings, but without any deduction being made for expenditure on capital account or on account of any sum which may be set aside in each year out of the profits for reserve or any other fund or account, and it is hereby expressly agreed and declared that the amount of such commission payable to the said firm shall not be less than Rs.25,000/-in each year, and that if in any year no such commission is earned or it falls short of Rs.25,000/- the company will pay to the said firm a sum sufficient to make up the guaranteed minimum of Rs.25,000/- on account of such commission. andc. andc. andc. (Vide Cl.(6) of the agreement). 5. andc. andc. andc. (Vide Cl.(6) of the agreement). 5. The said agreement also provided that it shall be lawful for the said firm to assign this agreement and the rights of the said firm thereunder and the whole or any portion of their remuneration as aforesaid, without thereby in any way affecting or prejudicing their appointment as such Managing Agents as aforesaid (vide Cl.(19) of the agreement). Clause (23) of the agreement runs as follows : "23. Clause (23) of the agreement runs as follows : "23. In the event of the company being wound up at any time for the purpose and with th6 object of transferring their business to another company, the company i.e. the said The Rajkumar Mills Ltd., shall make it one of the terms and stipulations of their agreement for the transfer of their property and business to such other company as aforesaid, that such other company shall appoint the said firm, of whatever member or members the same may, at the time of such sale and transfer as aforesaid, consist, to be managing agents of such new company, and with the like powers and authorities to the said firm, and on the same terms and conditions as to remuneration, emoluments, and otherwise as are herein contained, and it is hereby expressly agreed and declared that save and except with such conditions and stipulations as one of the terms of the sale and transfer thereof the company, i.e. The Rajkumar Mills Ltd., will not sell and transfer their business to any other company." Clause (24) of the agreement reads as follows : "In the event of the company being wound up at any time, either voluntarily or otherwise, with the object of entirely ceasing to carry on its business any longer, and not with the object of transferring its business to any other company, the said firm shall receive from the company or the liquidators thereof, as compensation for the loss of their employment as such managing agents as aforesaid a sum of money equivalent to five times the average, annual commission earned by the said firm' during the period of 6 years preceding the resolution or order, as the case may be, for the winding up of the company, if the com pany shall have so long existed, or ten times the average annual commission earned by the said firm during the year preceding such resolution or order, since the date on which the company was entitled to commence business, if the company shall be wound up within the said period of 6 year?". 6. The point for consideration in this case is whether the sum of Rs.2537/- should be allowed to be deducted from the taxable profits or not. 6. The point for consideration in this case is whether the sum of Rs.2537/- should be allowed to be deducted from the taxable profits or not. The sum of Rs.25,000/- has already been allowed by the Special Tax Commissioner presumably on the ground that the payment of this sum is not dependent on the making of profits. Clause (6) of the agreement reproduced above clearly states that the company will pay to the managing agents the sum of Rs.25,000/-whether it makes any profits or not. Taking this sum to be an item of expenditure incurred solely for the purposes of earning profits the Special Tax Commissioner deducted this amount in computing the profits for the assessment of industrial tax. The sum of Rs.2537/- paid in excess of Rs.25,000/- is clearly a share, of profits earned by the company. It has, therefore, to be determined whether this share of profits paid as commission to the managing agents should be regarded as an expenditure incurred solely for the purposes of earning profits or not. In - 'Pondicherry Rly.Co.Ltd. v. Commr. of Income-tax, Madras', reported in AIR 1931 PC 165 (A) Lord Macmillan, who delivered the judgment made the following observations : "The Pondicherry company is taken bound in the convention with the French Minister to 'make over' to the Colonial Government 'one half of the net profits' of the undertaking arrived at in the manner prescribed in the convention. It is claimed for the company that when it makes over to the Colonial Government their half of the net profits it is making an expenditure incurred solely for the purpose of earning its own profits. The Court below has unanimously negatived this contention and in their Lordships' opinion has rightly done so. A payment out of profits and conditional on profits being earned cannot accurately be described as a payment made to earn profits. It assumes that profits have first come into existence. But profits on their coming into existence attract tax at that point and the revenue is not concerned with the subsequent application of the profits." Rule 3, sub-r.(2) of the Indore Industrial Tax Rules corresponds with S.10(2), Indian Income Tax Act of 1922. It assumes that profits have first come into existence. But profits on their coming into existence attract tax at that point and the revenue is not concerned with the subsequent application of the profits." Rule 3, sub-r.(2) of the Indore Industrial Tax Rules corresponds with S.10(2), Indian Income Tax Act of 1922. Acting on the authority of this ruling the Cabinet of Indore State passed a resolution No.1072 dated 28-8-1931 and ordered that the agent's commission on profits should not be allowed to be deducted from the assessable profits. (Vide Notification No.1 dated 2nd/3rd February 1932, published in the Holkar Government Gazette dated 8-2-1932). It appears that Mill owner made a representation to His Highness the Maharaja of Indore. His Highness the Maharaja referred the matter to the High Court for opinion, and on receipt of the opinion of the High Court Notification No.13 dated 14-7-1933 was issued by the Commerce and Industry Department. This Notification reads as follows : "In continuation of this office Notification No, 1 dated 3-2-1932 it is hereby published for the information of the mills and factories concerned that on submission of the Prime Minister's (Legal Department) report No.25 dated 11-5-1933 His Highness the Maharaja is pleased to order (Vide Huzur Shree Shankar Order No.173 dated 29-6-1933) that the opinion of the Full Bench of the High Court being that the managing agent's commission on profits is not an item of expenditure incurred solely for the purpose of earning the said profit within the meaning of R.3(2)(IX) of the said Industrial Tax Rules and this being also the view of the Cabinet as expressed in their resolution No.1072 dated 28-8-1931 the aforesaid cabinet resolution be given effect to and the industrial tax due on the amount of the managing agent's commission on profits be recovered with effect from the date of the said Cabinet resolution." This Notification makes it abundantly clear that His Highness the Maharaja ordered that the industrial tax due on the amount of the managing agent's commission on profits be recovered. This being an order of the ruler, who enjoyed sovereign powers, that order is not open to challenge. This is a mandate emanating from a- sovereign and as such has the force of law. This being an order of the ruler, who enjoyed sovereign powers, that order is not open to challenge. This is a mandate emanating from a- sovereign and as such has the force of law. This Court has, therefore, no power to go behind the order and enquire as to whether the managing agent's commission on profits is an item of expenditure solely incurred for the purpose of earning profits or not. In this view of the matter the point at issue is concluded by Huzur Shree Shankar Order No.173 dated 29-6-1933. 7. Conceding, however, for the sake of argument, and only for the sake of argument, the contention of Mr. Samvatsar, the learned counsel for the appellant, that Huzur Shree Shankar Order passed not in the exercise of the ruler's sovereign powers but as a head of the executive to give effect to the opinion of the High Court, which then had no power to decide any matter in respect of industrial tax, I proceed now to examine whether the amount of Rs.2537/- paid out of the profits to the commission agents is an item of expenditure incurred solely for the purpose of earning profits or not. We have been referred in the course of argument to - AIR 1931 PC 165 ', (A); - 'Indian Radio and Cable Communications Co.Ltd. v. Commr. of Income-tax, Bombay Presidency and Aden', AIR 1937 PC 189 (B); - 'Tata Hydro-Electric Agencies Ltd., Bombay v. Commr. of Income-tax, Bombay Presidency and Aden', AIR 1937 PC 139 (C); - 'Commr. of Income-tax, Bombay v. Tata Sons Ltd.', AIR 1939 Bom 283. (D) and - 'Commr. of Income-tax v. Bombay Burma Trading Corporation Ltd.', AIR 1941 Rang 145 (SB) (E). I have already referred to AIR 1931 PC 165 (A). Lord Macmillan laid down in that case that a payment out of profits and conditional on profits being earned cannot accurately be described as a payment made to earn profits, and that the profits on their coming into existence attract tax at that point. This statement he explained in a later case reported in - 'Union Coal Storage Co. Ltd. v. Adamson', (1932) 16 Tax Cas 293 (F). This statement he explained in a later case reported in - 'Union Coal Storage Co. Ltd. v. Adamson', (1932) 16 Tax Cas 293 (F). In this case he observed as follows : "I was dealing with a case in which obligation : was first of all to ascertain the profits in a prescribed manner after providing for all outlays incurred in earning them and then to decide them," In this explanation he makes it clear that an outlay incurred in earning the profits has to be. deducted in computing profit for assessing tax. AIR 1937 PC 139 (C) is not applicable to this case. The question in that case was whether Tata Hydro-Electric Agencies Ltd. were entitled to deduct 25 per cent, of their commission payable to F.E. Dinshaw Ltd. and Richard Tilden, Smith from their taxable income. Their Lordships of the Privy Council held that Tata Hydro-Electric Agencies Ltd. being assignees of the rights and liability of Tata Sons Ltd. were not entitled to deduct the payment made to F.E. Dinshaw Ltd. and Richard Tilden Smith. They however stated that if the question had arisen in respect of Tata Sons Ltd., they would have been entitled to deduct their payment to F.E. Dinshaw Ltd. and Richard Tilden Smith as, being expenditure incurred solely for the purpose of earning their profits. Tata Hydro-Electric Agencies Ltd., they observed, incurred an obligation to make payment in consideration of their acquisition of the right and opportunity to conduct the business. On this ground they disallowed the claim of Tata Hydro-Electric Agencies Ltd. This decision has no bearing on the present case. In ' AIR 1937 PC 189 (B)', the facts were as follows. Indian Radio Cable Communication Co. Ltd. entered into an agreement with the Imperial and International Communications Ltd. By the agreement both the businesses were to be combined and it was to be conducted by Indian Radio and Cable Co. Ltd. which was to pay one half of the net profits of the Radio Co., to the Imperial and International Communications Ltd. The question that came up for consideration was whether one half share of the net profits payable by the Indian Radio and Cable Co. Ltd., is a proper deduction to be allowed for the purpose of arriving at the amount on which Indian Radio and Cable Co. Ltd., is a proper deduction to be allowed for the purpose of arriving at the amount on which Indian Radio and Cable Co. Ltd. should be assessed for the purposes of income-tax and super-tax within the meaning of S.10(2)(IX). In the course of the judgment Lord Maugham made the following observations : "Their Lordships have had the advantage of a learned argument on behalf of the appellants; but they have found themselves unable to come to a conclusion different from that of the High Court. It may be admitted that, as Mr. Latter contended it is not universally true to say that a payment the making of which is conditional on profits being earned cannot properly be described as an expenditure incurred for the purpose of earning such profits. The typical exception is that of a payment to a director or a manager of a commission on the profits of a company. It may, however, be worth pointing out that an apparent difficulty here is really caused by using the word 'profits' in more than one sense. If a Company having made an apparent net profit of £ 10,000 has then to pay £ 1,000/- to directors or managers as the contractual recompense for their services during the year, it is plain that the real profit is only £ 9.000. A contract to pay a commission at 10 per cent, on the net profits of the year must necessarily be held to mean on the net profits before the deduction of the commission, that is, in the case supposed, a commission on the £ 10,000/-." Their Lordships further observed : "The sum is in truth made payable as part of the consideration in respect of a number of different advantages which the appellants derive from the agreement and not all of them can be shown to be of a purely temporary character. The agreement as a whole is much more like one for a joint adventure for a term of years between the appellant company and the Communications Company than one for a lease for that period." His Lordship also made the following observations : "Their Lordships recognize the difficulty which may often exist in deciding whether expenditure not in the nature of capital expenditure has been incurred solely for the purpose of making or earning income, profits or gains and they agree that it may be impossible to formulate a test which will always suffice to discriminate between the expenditure which is and which is not allowable for the purpose of income-tax." 8. Holding that the agreement was in the nature of a joint adventure for a term of year their Lordships disallowed the claim of the Indian Radio and Cable Communications Co. Ltd. to deduct the half share of the net profits from the taxable profits. 9. Next case to which we have been referred is 'AIR 1939 Bom 283 (D)'. In this case the question for consideration was whether Tata Sons Ltd., were entitled to deduct the part of remuneration payable to Mr. Dinshaw from the taxable income. Beaumont C.J. held in that case that the agreement to share their commission with the lender was part of the terms on which they managed to obtain finance and in his opinion, therefore, in commercial sense the payment of this share of the commission was an expenditure solely for the purpose of earning profits or gains, viz., the remainder of the commission. 10. Next case cited at the bar is 'AIR 1941 Rang 145(E)'. The facts of this case are to some extent similar to the facts of the present case. A company known as the Burma Trading Company was formed to carry on and develop the business in Burma of one Willam Wallace. The agreement between Mr. Wallace and the Company was that Messrs. Wallace and Co., of Bombay should be secretaries, treasurers and managers of the company. A company known as the Burma Trading Company was formed to carry on and develop the business in Burma of one Willam Wallace. The agreement between Mr. Wallace and the Company was that Messrs. Wallace and Co., of Bombay should be secretaries, treasurers and managers of the company. The Company changed its name to the Bombay Burma Trading Corporation Ltd. Article 77 of the Memorandum of and Articles of Association was as follows : "The remuneration of the secretaries, treasurers and managers for the time being shall be and consist of a commission of 5 per centum on the gross proceeds of the business of the company." Later on it was changed as follows : "The remuneration of the secretaries, treasurers and managers for the time being shall be a share of the net profits of the company during any official year, such net profits to be ascertained after deducting for depreciation, wear and tear of the moveable and immovable properties, leases, livestock and other assets of the company and after deducting also such sums as the directors may carry to the fire insurance fund, under-writing fund, fixed property fund and suspense account to meet contingent depreciations or losses, equal in amount to the aggregate of the sums applied in payment of dividends to the shareholders both ordinary and preferential and of the sum set aside to the general reserve fund in each year; provided always that the sum to be received by them as remuneration in any one year shall not exceed a sum calculated at 5 p.c. on the gross proceeds of the business of the company for that year." The question that came up for consideration was whether under S.10 of the Act the assignee corporation was entitled to claim a deduction from its profits and gains to the extent of Rs.8,48,235/- paid by it to Messrs. Wallace and Company of Bombay as their remuneration. The Special Bench of the Rangoon High Court held that assessee corporation was entitled to claim a deduction from its profits to the extent of the remuneration paid to Messrs. Wallace and Company of Bombay. Wallace and Company of Bombay as their remuneration. The Special Bench of the Rangoon High Court held that assessee corporation was entitled to claim a deduction from its profits to the extent of the remuneration paid to Messrs. Wallace and Company of Bombay. Roberts, C.J. in his judgment made the following observations : "It is unfortunate that Art.77 uses the words 'net profits' because when one looks at the clause which states how they are to be ascertained, one finds that the outlay incurred annually (for the purpose of earning the profits) in remunerating the managing agents is omitted. Various deductions are made from the gross profits and the residue is called net; but it is still not the real net profit or taxable profit. One further deduction has yet to be made, and before this is done, the sum arrived at is only the net sum to be halved for the purpose of the, deduction. If it is more than 5 per cent., of the gross proceeds, the latter amount is, by virtue of the agreement, to constitute the remuneration of Messrs. Wallace and Co. Once this deduction has been made the real net profits come into existence and attract tax at that point." This decision proceeds on the basis that the word 'net profits' used in Art.77 is used in a special sense. The net profits referred to in Art.77 are profits only for the purpose of computing share of Messrs. Wallace and Co. But it is not the amount of real net profits, which is taxable. Remuneration to Messrs. Wallace and Co., being an item of expenditure solely incurred for the purpose of earning profits, that must be deducted before the amount of taxable profits is ascertained. This authority no doubt Jays down the proposition that remuneration to managing agents is an item of expenditure incurred solely for the purpose of earning profits, but as observed by Lord Maugham in AIR 1937 PC 189 (B)' it is impossible to formulate a test which will always suffice to discriminate, between the expenditure which is and which is not allowable for the purpose of income-tax. Similar observations were made by Lord Macmillan in ' AIR 1937 PC 139 (C)'. Similar observations were made by Lord Macmillan in ' AIR 1937 PC 139 (C)'. He observed as follows : "Their Lordships recognize and the decided cases show how difficult it is to discriminate between expenditure which is, and expenditure which is not, incurred solely for the purpose of earning profits or gains." Each case, therefore, has to be decided on its own facts. 11. In the present case as the agreement and articles of association show, the. firm of Sir Saroopchand Hukumchand and Co. are not ordinary managing agents. They are also promoters of Rajkumar Mills Ltd. The agreement also shows that if the Company is wound up within six years, the managing agents are to be paid ten times the average annual commission earned during the preceding year as compensation and if the company were wound up later the managing agents were to be paid a sum equivalent to five times the average annual commission during the period of six years preceding the resolution. The agreement also lays down that the managing agents were to receive Rs.1500/- per mensem as office allowance. This allowance although termed as office allowance is only another form of payment. Because all the office expenses were to be paid by the company. Besides the commission agents were entitled to a commission of Rs.25,000/- per year even if the company did not earn any profits. These facts go to show that the remuneration of the managing agents was Rs.18,000/- as office allowance and Rs.25,000/- as commission. The commission was fixed at the rate of 16 per cent, on the net profits. If the share of profits calculated at 16 p.c. exceeded Rs.25,000/- the managing agents were entitled to the excess amount. Taking into consideration the fact that the managing agents were also promoters of the company and had secured most beneficial terms in the contract of agreement, there is no doubt in my mind that it was a joint adventure between the company and the managing agents in which profits were to be shared in accordance with the scheme laid down in the agreement. The amount paid in excess of Rs.25,000/-therefore, is a payment out of profits and conditional on profits being earned, and hence it cannot be described as an item of expenditure incurred solely for the purpose of earning profits. The amount paid in excess of Rs.25,000/-therefore, is a payment out of profits and conditional on profits being earned, and hence it cannot be described as an item of expenditure incurred solely for the purpose of earning profits. I am, therefore, of opinion that the sum of Rs.2537/- paid to the managing agents is not an item of expenditure incurred solely for the purpose of earning profits, and hence the company is not entitled to deduct this amount from taxable profits. 12. For the reasons given above this appeal must fail and is dismissed with costs.